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Tuesday, November 13, 2012

Diving Off the Fiscal Cliff

Even with hugely higher taxes we'll still be marching toward default -- and the military cuts will make war more likely.

On or about the end of this year, some big things will be happening with federal government income and outlays. These are commonly referred to as "the fiscal cliff." Although these changes are complicated, I can simplify them a bit by leaving some small items out.

Basically, the substantial tax cuts George Bush put through on personal income, on dividends, on estates, on capital gains, will expire. That means taxes, especially for upper income persons and for those with large holdings of stocks, and with large estates, will go up quite dramatically. Some estimates put the total increase in the neighborhood of eight to nine percentage points for a high income earner.

The effect on stocks will be large, since the rate in dividends -- a large part of the return on stocks -- will more than double. That will make stocks less valuable by a goodly margin. Look out below.

The total intake from these tax increases is likely to be in the range of very roughly $250 billion (and I emphasize that this is a rough number) in 2013. There will also, slightly later, be the Obamacare tax hikes on high earners, which will add about 3.5 percentage points to the income tax rate for those with what the Obama regime dubs high income earners. Read more....